We believe that, foundationally, no rational actor would invest if they believed the subject investment was worth less than the price they were willing to pay today. Therefore, in our estimation, all investing is value investing. We are value driven investment managers subscribing to the foundational tenets of investing set forth by Benjamin Graham and David Dodd, most specifically the concept of margin of safety. To paraphrase Seth Klarman in his preface essay to Security Analysis 6th Edition, the concept of margin of safety is intended to protect the investors physical and emotional capital against threats such as imprecision, bad luck, and the general vicissitudes of the economy and stock market.
The general premise of our investment philosophy is rooted in inefficiencies of the market and the opportunities that are created by markets mispricing of securities. The market price of a security can certainly reflect the underlying value of the firm; however, at times markets will misprice a security relative to our intrinsic value assessment thus providing opportunity to purchase with the attendant margin of safety. We look for attractive risk-reward opportunities in companies whose quality, opportunity and strength are undervalued relative to our assessment at inception.
Our primary concern is avoiding loss; rule number one is “do not lose money”, rule number two and three simply refer to rule number one. With that said, we understand that the unexpected should be expected and are therefore prepared to reassess the fundamental assumptions of our holdings in the event of share price movements contrary to our expectation. If, after thorough reassessment, our valuation expectation still yields sufficient margin at current levels we are prepared to add to positions. In the event our thesis is impaired or altered significantly resulting in a valuation expectation which does not yield sufficient margin, we will exit the position.